TORONTO (Reuters) - Canada’s economy will show little or no growth for much of the next year, paving the way for lower interest rates, a group of leading Canadian economists said on Monday.
The comments were made at an emergency panel discussion held by the Economic Club of Toronto to talk about the global economic crisis that has ravaged stock markets.
All five of the economists seemed to agree that financial problems will continue to radiate out of the United States and add stress to other economies, including Canada‘s.
“By the end of next summer, compared to where we are today, I suspect we will have little, if any, growth in Canada, the U.S., and a very soft period of economic activity in Europe as well,” said Bank of Nova Scotia Chief Economist Warren Jestin. “And, as a result, I suspect interest rates will come down.”
Jestin’s comments followed a Scotiabank report by three of his colleagues that said Canada is headed for a recession because of lower commodity prices, a softer housing market and weaker retail sales.
Despite his expectations for slowing economic growth, Jestin said the fundamentals that drove the Canadian dollar above the U.S. dollar for the first time in more than 30 years last November remain intact and will keep the currency from falling below the 90 U.S. cent level.
He said Canada’s good fiscal situation relative to other countries and its trade position, which is deteriorating but still better than many others, will eventually drive the Canadian dollar higher.
Toronto-Dominion Bank Chief Economist Don Drummond said he expects little or no growth in North America and much of the developed world, including Europe and Japan, until late 2009.
And even in 2010, Drummond suggested there will not be a typical snapback in growth similar to the ones he said often tend to follow periods of weakness.
Royal Bank of Canada Chief Economist Craig Wright said a U.S. recession is a given and its recovery will be shallow, which will continue to hurt Canadian exports.
“We’re not going to see a sharp snapback in growth because there is no one sector in the U.S. economy that is positioned to lead us out of this weak spot,” said Wright.
“IT‘S TOO LATE”
Avery Shenfeld, senior economist at CIBC World Markets, said emergency measures taken to help put an end to the global economic crisis are unlikely to spark a sudden turnaround and put a floor under the markets.
“It’s too late for any of that to prevent a global recession because we are already in one,” said Shenfeld. “And if this ends up just being a normal recession that would actually be pretty good news.”
BMO Capital Markets Deputy Chief Economist Doug Porter said it looks as if markets are pricing in more of a hard landing for commodity prices, which would hurt energy producers and eventually the housing market in Western Canada.
“Trying to do an economic forecast in this kind of turmoil is a bit like trying to put a value on your house when the kitchen is on fire,” said Porter.
“But it’s safe to say that the longer it goes on the more serious the damage is going to be.”
Editing by Rob Wilson